Cybersecurity is a huge industry that has never been more important. Hackers are more adept at breaching systems and wreaking havoc on businesses. Precautions must be taken to protect internal and customer data.
This requires the implementation of one (or more) cybersecurity solutions, and as a result, investors should consider adding cybersecurity stocks to their portfolio as demand for their products is huge.
Two of the most popular are Palo Alto Networks (NASDAQ: PANW) And CrowdStrike (NASDAQ: CRWD). But which one is the better buy? Let’s find out.
Palo Alto and CrowdStrike compete heavily
Let’s first discuss each company’s primary cybersecurity activities.
Palo Alto divides its business into three segments: network security, cloud security and security operations. Network security activities include firewalls and a zero-trust platform that prevents outsiders from gaining access to a network. The cloud security platform protects cloud workloads, and the security platform provides products such as endpoint security (endpoints are network access devices such as laptops) and threat detection response.
CrowdStrike has a similar product range, although its original business was not firewalls like Palo Alto. It started with a cloud-first security approach that started with endpoint protection and then expanded to other areas such as identity protection, cloud security, threat intelligence, and endpoint detection response. So Palo Alto and CrowdStrike are direct competitors in many of their offerings.
But when you dig into their financials, a leader starts to emerge.
CrowdStrike’s growth is expected to remain strong this year
If you look at revenue growth alone, CrowdStrike appears to have the edge. However, this is a side effect of a smaller company. This is fully reflected in CrowdStrike’s growth trajectory, as year-over-year revenue growth slows as it scales.
Although CrowdStrike is growing faster than Palo Alto, the tables could be turned if Palo Alto were as big as CrowdStrike. However, the forward-looking indications are not so rosy for Palo Alto.
For the quarter ended April 30, Palo Alto expects revenue growth of just 3%. (Earnings results are reported on Monday.) This is a huge red flag, especially compared to CrowdStrike and other cybersecurity companies.
For the quarter ended April 30, CrowdStrike expects revenue of approximately $904 million, indicating growth of 31%. (Earnings results are scheduled to be released on June 4.) That’s quite a difference, and it shows that Palo Alto is struggling.
Or is it?
Palo Alto management said on its February conference call with analysts that the guidance was “a result of us making a shift in our strategy as we look to accelerate both our platformization and consolidation and activate our AI leadership .” Artificial intelligence (AI) can play a big role in powerful cybersecurity products, so this shift makes sense.
However, CrowdStrike has been using AI since its inception to automatically detect and address threats without human intervention. This has given CrowdStrike an edge over Palo Alto networks in the endpoint protection game.
Which stock?
For me, this is all I need to declare CrowdStrike the winner. It already has significant AI experience, while Palo Alto is late to the game.
CrowdStrike is by far the better buy here, and I wouldn’t be surprised if it starts to attract some Palo Alto customers in the future.
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Keithen Drury holds positions in CrowdStrike. The Motley Fool holds and recommends positions in CrowdStrike and Palo Alto Networks. The Motley Fool has a disclosure policy.
Better Cybersecurity Stock: Palo Alto Networks vs. CrowdStrike was originally published by The Motley Fool
